Tuesday, September 21, 2010

A Blog Worth Bookmarking

“I just made a small edit to the wikipedia page on Adam Ferguson. Ferguson was a contemporary of Adam Smith, and another major figure in the Scottish enlightenment. The wikipedia page claimed that Ferguson, Hume and Smith were all theorists of “spontaneous order” and referenced Smith’s “invisible hand”. As readers of this blog may know, I’m with Gavin Kennedy: the invisible hand in Smith’s work is a metaphor for unintended consequences, not a theory of spontaneous order and certainly not a theory of how “private vices” create “public virtues” (in Mandeville’s terms). Whether or not you think Smith and Ferguson were spontaneous order theorists of some variety – in other words, that they believed that social order was emergent from lots of little unplanned interactions rather than the result of some grand design* – we can agree that the invisible hand metaphor is not a theory of markets, and we should dissociate the two. Connecting the invisible hand to a theory of markets makes it seem like Smith believed markets just worked if left to their own devices – the laissez-faire position. Of course, that’s not what Smith thought, as a casual reading of the entirety of Wealth of Nations would show – or a casual reading of Gavin Kennedy’s excellent blog.

Both Ferguson and Smith do highlight how the modern order emerged from the unplanned actions of all kinds of people. But neither Smith nor Ferguson argues that the modern order is any way optimal or efficient, nor do they argue that this order would be more optimal or efficient if in every case government let individuals do their business unimpeded. Smith opposed many regulations – like those on what occupations someone could pursue – but supported others – such as regulations on bank lending and the creation of money. See Viner 1927."

The more we chip away at the modern consensus with he facts about what Adam Smith actually wrote and the context in which he wrote, the earlier that modern economists will liberate themselves from spurious ideas about the use by Adam Smith of the metaphor of 'an invisible hand', which misled most commentators to believe the myths about how a modern economy works. And then hubris struck...